Overstock CEO Patrick Byrne Is Creating a Bitcoin-esque Stock Market Exchange

Blockchain, the conceptual engine underlying Bitcoin, has far-reaching potential to revolutionize much more than just our system of currency. The Agora Voting Project uses a blockchain to facilitate a secure electronic voting system and has already been used in Spanish Congress. Bitcloud is a project that aims to create a decentralized, alternative Internet based on a technology similar to blockchains. Now Patrick Byrne, the pioneering CEO of Overstock, wants to remake the stock market the same way.

Overstock was already one of the first large vendors to accept Bitcoin, and did $126,000 worth of Bitcoin transactions in the first 24 hours. Clearly though, Byrne has much larger plans for incorporating decentralized systems in the marketplace. On Tuesday, Overstock posted on their blog a rough outline of all the potential ways that a business could issue cryptosecurity. 

Essentially, instead of having a central stock exchange such as NASDAQ or the Chicago Stock Exchange, trades would be executed and cryptographically confirmed on a decentralized, public ledger that can be viewed by anyone at anytime—a blockchain. Overstock is the first to admit that this is all still theoretical:

"However, how a public company would issue a cryptosecurity has yet to be established. So as to reduce regulatory opposition a cryptosecurity should, at least initially, mimic as closely as possible the economic and legal rights of common stock, but because the characteristics of and methods of issuing a cryptosecurity may be novel, how such a security may be issued and traded, and the risks associated therewith, deserves careful thought."

Byrne's motivation in creating a decentralized system for trading securities is apparent as he has a history of picking fights with the giants of the stock market. In 2007, Overstock went after 12 brokerage firms on Wall Street, suing them for $3.48 billion. The company accused them of naked short selling, which is when brokers sell shares of a stock that they don't actually have, intending to drive the price down and then purchase it at a lower price. The lawsuit is ongoing. 

Byrne is of the opinion that questionable regulatory practices will send us into another massive recession unless something changes soon. Earlier this year, he told Wired, who calls him the Bitcoin Messiah:

"Someday, either zombies walk the earth or something close to that. Bitcoin is the solution."

Comments

[Hyperion]

This crypto stuff cannot stand! It’s anarchy! You can’t have people just buying whatever they want and governments not having a way to track, regulate, and tax it! We’re going back to the stone age!

[HazelMeade]

I’m not sure I see the benefit. It’s not like anyone holds actual pieces of paper for the stocks they own on Ameritrade. And it’s not like forgery of stock shares is a serious problem. And everyone’s still going to watch to keep their cryptostocks on a secure server. So what would be the difference?

[Heroic Mulatto]

Protection from ludicrous insider trading laws…maybe?

[robc]

Anonymity.

[Corning]

It would allow people to actually hold the stocks they own and not have to go through a 3rd party to buy or sell them.

Also you could easily switch to a different 3rd party if you are using one (different exchange) in a matter of minutes without even really asking.

At least that is what i think could happen. You can move Bitcoins from one exchange to the next then back on your computer then back onto a bitcoin holding service like blockchain.info really easily. I am assuming cryptosecurities would work the same way.

This would also allow for paired trades. Not just trade stocks for dollars but trade for gold for bitcoin or even other cryptosecurities if they existed.

[HazelMeade]

That’s a good point. You can easily transfer securities back to your home computer and then transfer then to another account or give them away or sell them for bitcoin.

[SweatingGin]

A couple of other advantages, off the top of my head:

No counterparty risk, assuming it is all done in code.

Simple to issue dividends (you have the whole class, send the coinage to them).

Global, border-less ownership of corporations. End of capital controls, essentially.

[Palin's Buttplug]

Byrne is of the opinion that questionable regulatory practices will send us into another massive recession unless something changes soon.

That happened in 2008, Byrne.

[Corning]

For a guy who hates Bush it is odd that you agree with him on so much.

[Sevo]

Fuck you, turd.

[Corning]

Who is going to volunteer to be a node in a bit-torrent network for cryptosecurities?

[np]

So as to reduce regulatory opposition a cryptosecurity should, at least initially, mimic as closely as possible the economic and legal rights of common stock, but because the characteristics of and methods of issuing a cryptosecurity may be novel, how such a security may be issued and traded, and the risks associated therewith, deserves careful thought.

NOO!!! Totally defeats the purpose. Very disappointing.

They did list the possible underlying platforms, and Ethereum is the most promising and flexible so far. In fact, the whole point is to disintermediate and build automated contracts and exchanges. To that end, much of the discussion around Ethereum and similar technologies for building businesses are DACs — Decentralized Autonomous Corporations.

You shouldn’t need to deal with the human, US legal system or SEC or CFTC, or any regulatory agency at all. Your legal rights would be guaranteed in the code (the script) that is essentially your contract.
Someone has even built an experimental Ethereum-hardware interface running on Raspberry-Pi to control a physical door/lock.

[np]

*edit* DAC: Distributed Autonomous Corporation

[SweatingGin]

Worth noting, too, that Bitcoin can be programmed a bit, too, but right now most of the programming functionality is disabled over concern for security issues. It could (and will) be turned back on though.

The Bitcoin scripting language is very limited, while Ethereum aims to be Turing Complete (able to do essentially anything any other program could). That brings some excellent advantages, but some drawbacks, too. You could write an Ethereum program that never finishes (never produces a useful result), and as long as it still has money to pay for cycles, it would keep going.

Bitcoin’s scripting gives some very nice things, too. Multi-sig addresses are there today (2 of these 3 people must sign the transaction to spend it). Anyone can pay offers lighthouse contracts. With a little trickery, you can have betting (need to trust an Oracle to say who won the game). In the future, there will be a lot of other things that can be done, too.

[HazelMeade]

You could write an Ethereum program that never finishes (never produces a useful result), and as long as it still has money to pay for cycles, it would keep going.

Self-aware corporations?

[vserve629]

Sounds like some serious business.

http://www.WentAnon.tk

[Sevo]

Try again:
Seems there’s hypocrisy here:
“The company accused them of naked short selling, which is when brokers sell shares of a stock that they don’t actually have, intending to drive the price down and then purchase it at a lower price. The lawsuit is ongoing.”

Compared to:
“Byrne is of the opinion that questionable regulatory practices will send us into another massive recession unless something changes soon.”

Seems a bit selective about the regulations he favors.

[Corning]

there are regulations then there is fraud.

I am not an expert of what naked short selling is but it sounds like selling something you do not own to buyers who do not know they are buying nothing more then a promise.

Contrasted with short selling which is borrowing something someone else owns with a deposit selling it and then buying it back to give back to the owner.

A cryptosecurity would actually prevent this as proof would be made to the buyer at purchase that the actual security exists.